Question 1

What is the purpose of an operating agreement, and what benefits does it afford an LLC?

Accepted Answer

The answer of What is the purpose of an operating...

Question 2

How do member-managed and manager-managed LLC management structures differ?

Accepted Answer

The answer of How do member-managed and manager-managed LLC management...

Question 3

Although many LLCs are treated as pass-through entities, an LLC's members may elect to be taxed as a:

Accepted Answer

Although many LLCs are typically treated as a pass-through entity, the LLC's members may instead elect to be taxed as a corporation if they consider the corporate tax structure more favorable.

Question 4

How may LLCs be ended?

Accepted Answer

The answer of How may LLCs be ended?...

Question 5

If an LLP does not have a partnership agreement, the courts will look to ________ to resolve internal management disputes.

Accepted Answer

The RUPA, or the UPA if the RUPA has not been adopted, will control in the absence of a partnership agreement.

Question 6

Because it is not a taxable entity, an LLP:

Accepted Answer

Because it is not a taxable entity, an LLP files an information return.

Question 7

The amount and methods of capitalizing an LLC are often controlled by the:

Accepted Answer

The operating agreement of the LLC often controls the amount and methods of capitalizing the business.

Question 8

Explain the similarities and differences, if any, with regard to the tax treatment of LLCs and LLPs.

Accepted Answer

The answer of Explain the similarities and differences, if any,...

Question 9

When an LLP is formed, who files the initial paperwork?

Accepted Answer

A general partnership already formed may file for LLP status.

Question 10

John, Paul, Mark, and Luke have been operating an LLC, and according to the operating agreement, the term of the LLC is set to expire in the near future. What options do the four partners have?

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The answer of John, Paul, Mark, and Luke have been...

Question 11

Which of the following would not generally be formed as an LLP?

Accepted Answer

All are professional service firms except bar owners.

Question 12

Stop Now LLP manufactures brake linings and sells its product to repair and maintenance shops for use as replacements for worn brakes. Stop Now approaches Coastal Garage and offers Coastal a very good price on the brake linings. Coastal is a nationwide company, and the order would be very large. The management at Coastal is very interested in dealing with Stop Now but is concerned with the LLP's limited liability protections for Stop Now's partners. What could Coastal do to protect itself from the LLP's limited liability protections?

Accepted Answer

The answer of Stop Now LLP manufactures brake linings and...

Question 13

What is meant by the term capital call? Under what circumstances might a capital call occur, and how does it affect partners?

Accepted Answer

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Question 14

In Lieberman v. Wyoming.com, LLC, Lieberman dissociated from the LLC and demanded cash for his share of the company. The remaining members voted to continue the company, and the operating agreement discussed distribution in the case of dissolution but not simple dissociation. The court decided that:

Accepted Answer

The court could not step in and force a distribution and would not allow the members to force Lieberman to sell his interests. The court recognized his dissociation but left his interest in the company intact.

Question 15

Explain how LLCs are capitalized.

Accepted Answer

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Question 16

What was the effect of the creation of the LLC on those seeking to open a new business?

Accepted Answer

The answer of What was the effect of the creation...

Question 17

In an LLP, any income is taxed:

Accepted Answer

LLPs are not subject to tax; any income is taxed only when it is distributed to its partners.

Question 18

Clark and Kent are attorneys and have formed an LLP. They take on various debts and obligations to operate the firm, including an installment contract to purchase computers and copy machines for the office. The LLP law in their state provides for liability protection for innocent partners should another partner cause liability through a tortious act. Clark is sued by Lois for civil assault and battery after he improperly touches her during an office meeting to discuss her divorce, in which Clark is representing her. The amount of her judgment exceeds the assets of the LLP, and the LLP dissolves. What is Clark and Kent's liability for the judgment and other firm debts?

Accepted Answer

The answer of Clark and Kent are attorneys and have...

Question 19

All income and losses of an LLP are reported:

Accepted Answer

Because LLPs are not taxable entities, all income or losses are reported on the partners' individual tax returns.

Quiz 15: Limited Liability Companies and Limited Liability Partnerships